2023 (3) TMI 517 - AT - Income Tax

Tribunal upholds Income Tax revision order for inadequate inquiry into bogus purchases

The Tribunal upheld the Principal Commissioner of Income Tax's order under section 263, finding the Assessing Officer's inadequate inquiry into bogus ... Revision u/s 263 by CIT - Bogus purchases - CIT held AO had not investigated the bogus claim of purchases pertaining to these parties - Whether records of subsequent years could not have been considered by the ld.CIT for arriving at a finding that there was an error in the impugned order? - HELD THAT:- A bare and literal reading of clause (b) reveals that “records” include “all records” relating any proceedings under this Act which is available with the ld.CIT at the time of examination. There is no restriction in the Explanation 1(b) to section 263 ,where the term “records” is specifically defined, restricting “records” in any manner more so to a particular year only. Therefore, applying principle of literal interpretation, we see no reason to restrict the definition of “records” to that relating to the year for which revisionary jurisdiction is exercised, when the definition of the term clearly states that it includes all or any records relating to the assessee available with the ld.CIT at the time he examines it. In view of the same, the contention of the ld.counsel for the assessee that the ld.CIT could not have been referred to the records of the subsequent year i.e. Asst.Year 2015-16 for exercising his revisionary jurisdiction for the impugned year i.e. Asst.Year 2014-15 is rejected. Whether issue of purchases from these very same parties was examined during the assessment proceedings? - It is a fact on record that in subsequent year i.e. Asst.Year 2015-16 when these very same parties, from whom purchases were made in the impugned year, were examined and inquired into by the AO during assessment proceedings, it revealed that all these parties were bogus and non-existent even in the impugned year. The inquiry revealed that these parties did not have TIN for the impugned year, having surrendered it in earlier year. In the impugned year, the inquiry by the AO was clearly inadequate. The Ld.CIT has pointed out from the records that in response to inquiry conducted u/s 133(6) of the Act, these parties had responded in identical format. This ideally should have raised suspicion and prompted further inquiry. But the AO accepted their responses and treated the parties as genuine. Therefore, the inquiries conducted by the AO being inadequate, and the records of the Asst.Year 2015-16 revealing these parties to be non-existent and bogus, it cannot be said that the AO had taken a plausible view accepting the purchases from these parties as genuine. This plea of the assessee is also, therefore, rejected. Whether CIT without conducting any further inquiry had simply restored the issue to the AO to make further inquiry? - It is a fact on record that during the revisionary proceedings, the ld.CIT had confronted the finding of the AO in the subsequent year of the same parties having been found bogus and non-existent. The ld.CIT has noted that the assessee was given sufficient opportunity during revisionary proceedings to respond to the same and prove genuineness. But despite adverse material available relating to these parties, the assessee simply reiterated contentions which were made before the AO without dislodging the adverse findings for the assessment year 2015-16. Therefore, we find that, it cannot be said that the ld.CIT had arrived at his finding of error without conducting any inquiry and without making any further investigation into the issue. CIT had clear cut information that the creditors relating to these purchases were bogus. He had given sufficient opportunities to the assessee during the revisionary proceedings to counter this fact, but the same was not done by the assessee. Therefore in the absence of any explanation furnished by the assessee to controvert the findings of the Ld.CIT that the purchases were bogus, the ld.CIT, we hold, rightly found the assessment order erroneous causing prejudice to the Revenue in accepting assesses claim to such purchases as being genuine. CIT(A) held that the purchases though not made from these parties must have been made from some other parties, and accordingly restricted the addition to the element of GP embedded therein only, on the premise that the assessee must have gained on this count. Therefore, the fact that these parties were bogus and non-existent was not disturbed by the ld.CIT(A) in Asst.Yr. 2015-16. Therefore, this contention of the assessee merits no consideration. - Decided against assessee. Issues Involved:1. Legality of the order passed under section 263 of the Income Tax Act, 1961.2. Verification of purchases from certain parties deemed bogus.3. Consideration of records of subsequent years for revisionary jurisdiction.4. Adequacy of inquiry conducted by the Assessing Officer (AO).5. Finality of the revisionary order passed by the Principal Commissioner of Income Tax (Pr. CIT).Detailed Analysis:1. Legality of the order passed under section 263 of the Income Tax Act, 1961:The assessee contended that the Pr. CIT erred in law and fact by passing an order under section 263 revising the assessment order passed under section 143(3). The assessee argued that the order was neither erroneous nor prejudicial to the interest of Revenue, thus making the revision order untenable, illegal, and invalid. However, the Tribunal upheld the order of the Pr. CIT, stating that the AO had not conducted proper inquiries, making the assessment order erroneous and prejudicial to the interest of the Revenue.2. Verification of purchases from certain parties deemed bogus:The Pr. CIT observed that purchases from four parties were bogus and required further verification. The assessee had claimed purchases from these parties during the assessment year (AY) 2014-15, which were later found to be bogus in AY 2015-16. The Tribunal noted that the AO failed to make further verifications despite receiving identical replies from these parties, which should have raised suspicion. The Tribunal upheld the Pr. CIT's order, directing the AO to re-examine the genuineness of the purchases.3. Consideration of records of subsequent years for revisionary jurisdiction:The assessee argued that the Pr. CIT relied on records of AY 2015-16, which did not qualify as 'records' for AY 2014-15. However, the Tribunal rejected this contention, citing section 263(1) and Explanation 1(b) of the Act, which define 'records' to include all records relating to any proceeding under the Act available at the time of examination by the Pr. CIT. The Tribunal held that the Pr. CIT was within his rights to refer to the records of AY 2015-16 for exercising revisionary jurisdiction for AY 2014-15.4. Adequacy of inquiry conducted by the Assessing Officer (AO):The assessee contended that the AO had thoroughly examined the issue during the assessment proceedings and had taken a conscious decision. However, the Tribunal found that the AO's inquiry was inadequate, as it did not reveal that the parties were bogus and non-existent. The Tribunal noted that the AO accepted the responses from these parties without making further inquiries, despite the identical format of replies. The Tribunal upheld the Pr. CIT's finding that the AO's inadequate inquiry resulted in allowing bogus purchases, causing prejudice to the Revenue.5. Finality of the revisionary order passed by the Principal Commissioner of Income Tax (Pr. CIT):The assessee argued that the Pr. CIT had not arrived at a final conclusion of the error and had merely restored the issue to the AO for fresh examination. The Tribunal rejected this contention, noting that the Pr. CIT had confronted the assessee with adverse material available from AY 2015-16 and had given sufficient opportunities to respond. The Tribunal held that the Pr. CIT had rightly found the assessment order erroneous and prejudicial to the Revenue, and had fairly given the assessee an opportunity to present its case before the AO in the restored proceedings.Conclusion:The Tribunal dismissed the appeal of the assessee, upholding the order of the Pr. CIT under section 263. The Tribunal found that the AO's inadequate inquiry into the genuineness of purchases from certain parties, which were later found to be bogus, justified the revisionary jurisdiction exercised by the Pr. CIT. The Tribunal also held that the Pr. CIT was within his rights to refer to records of subsequent years and had given sufficient opportunities to the assessee to respond to the adverse material. The order pronounced on 3rd March 2023 at Ahmedabad concluded that the appeal of the assessee was dismissed.